Practical Operations Management
Practical Operations Management
2nd Edition
ISBN: 9781939297136
Author: Simpson
Publisher: HERCHER PUBLISHING,INCORPORATED
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Chapter 10, Problem 27P

(a)

Summary Introduction

Interpretation:

The order of size that will minimize S’s costsand the total cost of this order size.

Concept Introduction:

Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.

(a)

Expert Solution
Check Mark

Explanation of Solution

Given information:

It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is 365 days, ordering cost per order is $8.00 . Cost of the product is $0.25 , lead time is 3 days and holding cost is 4 times of cost of the product.

  orderquantity=2×annualdemand×orderingcostholdingcostperyear=2×9,125bottles×$84×$0.25=382.1bottles

Hence, the order quantity is 382.1bottles .

(b)

Summary Introduction

Interpretation:

The number of bottles of electric energy drink using the order size that minimizes S’s total costs.

Concept Introduction:

Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.

(b)

Expert Solution
Check Mark

Explanation of Solution

Given information:

It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is 365 days, ordering cost per order is $8.00 . Cost of the product is $0.25 , lead time is 3 days and holding cost is 4 times of cost of the product.

Calculate the average inventory:

  averageinventory=ordersize2=382.1bottles2=191bottles

(c)

Summary Introduction

Interpretation:

The frequency of ordering electric energy drink using the minimum cost order size.

Concept Introduction:

Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.

(c)

Expert Solution
Check Mark

Explanation of Solution

Given information:

It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is 365 days, ordering cost per order is $8.00 . Cost of the product is $0.25 , lead time is 3 days and holding cost is 4 times of cost of the product.

Number of orders are calculated by dividing the annual demand with the order size.

  nubmeroforders=annualdemandordersize=9,125bottles382.1bottles=23.88

Hence, the number of orders per year is 23.88 .

(d)

Summary Introduction

Interpretation:

The period in which order for electric energy drink to be placed.

Concept Introduction:

Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.

(d)

Expert Solution
Check Mark

Explanation of Solution

Given information:

It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is 365 days, ordering cost per order is $8.00 . Cost of the product is $0.25 , lead time is 3 days and holding cost is 4 times of cost of the product.

  Reorderpoint=annualdemandnumberofworkingdaysayear×leadtime=9,125365×3=75bottles

(e)

Summary Introduction

Interpretation:

The decision to be taken by S, if electric energy drink distributor charge only $0.22 for each bottle.

Concept Introduction:

Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.

(e)

Expert Solution
Check Mark

Explanation of Solution

Given information:

It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is 365 days, ordering cost per order is $8.00 . Cost of the product is $0.25 , lead time is 3 days and holding cost is 4 times of cost of the product.

  orderquantity=2×annaualdeamand×oreringcostholdingcostperunitperyear=2×9,125×84×0.25=382.1bottles

Hence the order quantity is 382.1 bottles.

The total cost of the firm is less for second condition than the first condition. Thus, the company should buy 1,000 bottles at the discount.

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